Fed's Fisher: Sluggish Economy to Linger

Federal Reserve Bank of Dallas President Richard Fisher said the U.S. is likely to see a 'a prolonged period of sluggish economic performance' with high unemployment as businesses reallocate capital and labor.
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SANTA BARBARA, Calif. (

TheStreet

) -

Federal Reserve

Bank of Dallas President Richard Fisher said the U.S. is likely to see a "a prolonged period of sluggish economic performance" with high unemployment as businesses reallocate capital and labor to adjust to today's economy.

In a prepared speech Thursday at the University of California, Santa Barbara, Fisher said the "needed" reallocation of labor and capital "has been, and will continue to be, impeded by financial markets." Fisher said markets are still a "long way" from returning to normal.

"We know from our own experience and from the experience of other countries that financial headwinds like these take years to abate," Fisher said in his speech.

Fisher said for the immediate future the "risk to price stability is a deflationary risk, not an inflationary one." With businesses lacking pricing power and facing difficulty expanding revenue because of weak demand they "will continue to run tight budgets as they try to preserve profit margins."

Businesses will "continue to focus on cost control, most painfully by shedding workers and driving those who remain on the payroll to higher levels of productivity," he said.

The Dallas Fed president said chief executives that he has surveyed are still "suffering from shock induced by the trauma of the crisis. I would say they are suffering from 'post-traumatic slack syndrome.'"

Fisher's remarks follow the release of minutes Wednesday from the Fed's Open Market Committee in which officials said they can envision a recovery but acknowledge that risks remain.

"Meeting participants agreed that the incoming data and anecdotal evidence had strengthened their confidence that the downturn in economic activity was ending and that growth was likely to resume in the second half of the year," according to the minutes from the Fed's meeting in August.

Still, there was disagreement from Fed officials about the

pace of the recovery

as growth is slowed by unemployment, sluggish consumer spending and tight credit conditions.

-- Reported by Joseph Woelfel in New York

.

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